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Running Your Business:
Shark Bait, Dipping a Toe Into The Tip Pool
By Thomas E. Reddin and James F. Parker, III

Employers in the hospitality industry need to be aware that the "tip pool" has become the latest trend in litigation under the Fair Labor Standards Act ("FLSA"). Most recently, Chili's Grill & Bar found itself embroiled in a class action lawsuit in Houston, Texas, in which employees allege that Chili's wrongly distributed tips to Quality Assurance workers and Expediters. Because they are often filed as class actions, these lawsuits can be very costly, both in terms of potential liability and attorneys' fees. Through this article, we hope to assist restaurants and other service establishments in managing and distributing their tip pools so as to avoid potentially expensive litigation.


Tipped employees-those who work in an occupation in which they regularly receive more than $30 per month in tips-are subject to unique federal minimum wage standards. Notwithstanding the current minimum wage of $5.15, the FLSA provides that tipped employees may be paid an hourly rate of only $2.13. Thus, the employer receives a "tip credit" for the $3.02 difference between the employee's actual hourly wage and the federal minimum wage. To take advantage of the lower rate for tipped employees, the employer must ensure that its tipped employees' total compensation (hourly rates plus tips) exceeds the $5.15 hourly rate.

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